Regulator calls for mergers in UAE insurance industry

The regulator of the UAE insurance industry is calling for greater consolidation as cutthroat competition bleed companies of profit.

Ibrahim Al Zaabi, the director general of the UAE Insurance Authority, said the draft regulations are in the final stages and have been referred to the UAE Cabinet. Delores Johnson / The National

The regulator of the UAE insurance industry is calling for consolidation to avoid cutthroat competition.

The call came as the watchdog yesterday unveiled a set of reforms for the industry.

“We need to introduce new laws and regulations to regulate the whole sector,” said Ibrahim Al Zaabi, the director general of the UAE Insurance Authority. “This is continuous. It doesn’t stop.”

The most significant include new rules on capital adequacy ratios and general supervision of insurance brokerages. A draft law, in the final stages and awaiting approval from the UAE Cabinet, will be aimed at better regulating car accidents among insurers, the traffic department and the Ministry of Justice.

The insurance authority has submitted a draft law in a bid to standardise motor policies for the sector.

At present, policies are approved via ministerial decree.

But when conflicts arise between the customer and the insurance company, the courts do not always follow the terms of the policy, as the matter is considered to fall under the rules of contract law.

The draft regulations are in the final stages and have been referred to the UAE Cabinet, Mr Al Zaabi said.

Insurance companies are performing well after Dh26.8 billion in premiums across all sectors in the UAE last year. The result is a marked recovery for insurance companies in the midst of stifling competition. The insurance sector has traditionally competed on price rather than products and services.

Mr Al Zaabi said yesterday that the value of premiums at the country’s insurers was expected to rise 10 per cent this year, after registering 9.5 per cent growth to a value of Dh26.8bn last year in a time of strong economic growth.

Sixty-one insurance companies are competing in the UAE, 27 of them foreign.

Mr Al Zaabi said yesterday that, with the exception of the 2011 Insurance House initial public offering, the authority has avoided licensing new companies since 2008.

“While the regulator reviews new applications on a case-by-case basis, it is vocal about the need for consolidation in the sector,” he said. “Not that it’s a negative thing, as the amount of premiums comparable to the amount of companies is generally good, but mergers will see bigger entities.”

The regulator is preparing to make available procedures on administering mergers between brokerage companies, inspired by the UAE companies law.

Insurers were hit hard amid a sell-off of UAE equities – their principal investments – after the 2008 global financial crisis.

Shares listed on the Abu Dhabi Securities Exchange (ADX) and Dubai Financial Market had lost 80 per cent and 55 per cent respectively from their peak in January 2008, hitting record lows in January 2012. But shares have rallied since then, with the ADX and DFM indexes up 65 per cent and 99 per cent respectively.

While the rebound has boosted profits for insurers, the regulator is concerned that it is based on stock market growth for some companies instead of their core insurance business.

“When companies go into the red, we sit with them and discuss the diversification of their investments and businesses and try to consult them with solutions to better run their operations,” Mr Al Zaabi said.

The insurance sector currently contributes about 1 per cent to GDP. The aim is to reach 3 per cent, the industry authority official said, but declined to provide a deadline.

There are 662 Emiratis employed in the sector, a growth of 17 per cent in recruitment of nationals from last year. They contribute about 8 per cent of the sector, but the aim is to reach 15 per cent by 2015.